"Unilateral Price Cuts and Industrial Accident Liability Shift to Subcontractors"… Fair Trade Commission Sanctions Sejin Heavy Industries

Fair Trade Commission Imposes 879 Million KRW Fine and Decides to Prosecute Corporation and Representative

[Sejong=Asia Economy Reporter Kwon Haeyoung] Sejin Heavy Industries, which uniformly lowered unit prices for subcontractors and shifted industrial accident liabilities through special contracts, has been sanctioned by the Fair Trade Commission.

On the 24th, the Fair Trade Commission announced that it imposed corrective orders and a fine of 879 million KRW on Sejin Heavy Industries for delaying the issuance of contracts when outsourcing the manufacture of ship component parts to subcontractors and unfairly determining subcontract payments through unjust special contracts. At the same time, it decided to prosecute the corporation and its representative.

Sejin Heavy Industries signed contracts with 34 subcontractors in 2017 related to projects ordered by Hyundai Mipo Dockyard and Hyundai Heavy Industries, uniformly lowering unit prices by 3-5% compared to the previous year, reducing subcontract payments by a total of 50 million KRW. Although it cited the downturn in the shipbuilding market and requests from the ordering party to reduce prices as reasons, the Fair Trade Commission judged these were not legitimate grounds.

A Fair Trade Commission official explained, "If unit prices are to be lowered by a uniform rate, it must be decided based on objective and reasonable grounds or be advantageous to the suppliers compared to individually determined unit prices. However, Sejin Heavy Industries lowered unit prices by a uniform rate without considering the content, difficulty, or required time of each item’s work, without objective or reasonable grounds, and no legitimate reasons were confirmed."

Additionally, from October 2017 to November 2020, Sejin Heavy Industries outsourced the manufacture of ship block component parts to 59 subcontractors and delayed issuing contracts for 3,578 cases by up to 400 days. Subcontractors must receive contracts containing important details such as item names, weights, and subcontract payments before starting work. Due to the delayed issuance of contracts, subcontractors proceeded with work without accurately knowing the work details or payment amounts, thus failing to secure procedural rights to prevent disputes.

Furthermore, clauses were included in the contracts that imposed responsibilities for industrial accidents, warranty liabilities, labor disputes, and additional work costs instructed by the primary contractor on subcontractors. There was also a condition that adjustments within 3% due to volume fluctuations would not be settled.

A Fair Trade Commission official stated, "Through this case, we confirmed that in the shipbuilding industry, subcontract payments are being reduced without legitimate reasons and that the customary unfair subcontracting practice of 'work first, contract later' continues. The Fair Trade Commission plans to continuously monitor unfair subcontracting practices in the shipbuilding sector and work with the industry to improve these wrongful customs."

This content was produced with the assistance of AI translation services.